Saturday, August 28, 2010

Bad Risk

My coworkers is married and getting a mortgage, so wants insurance. He asked on company e-mail if anyone knew of a company that would sell him life insurance for a reasonable price. I don't have any life insurance, but I have always had property or renter's insurance as appropriate, so I asked my insurance company if they covered pilots. They said:

Dear Mr. Anonymous,
Thank you for the inquiry with Canada Life. Yes, we do approve commercial pilots.

However, each case is underwritten individually, and individual circumstances are evaluated. We look at the total number of solo hours, age of the applicant, locations where the flying is done, what kind of hazardous conditions are involved, and more.

After an application is received, from a commercial pilot, we would either mail out our aviation questionnaire if the applicant prefers, or we can have our teleunderwriters gather the information by doing a telephoned interview. This is our fastest way to have a final decision on an insurance application.

I'm not going to object to a knowledgeable analysis of the risk posed by a particular client but solo hours? Solo hours become largely irrelevant after finishing the requirements of the private licence. It makes the insurance company sound like someone's mother. He's already spoken to this company, it turns out, and they gave him a quote that seems to indicate they don't think he has good odds to last out the year. I guess he doesn't have enough "solo hours" for them.

And yes, they did call me Mister.


Colin said...

I would be curious what the actual application was like. The person writing the email might have thought "solo cross country hours" was too long to type.

Although not THAT important, solo cross country time does make a difference. It means you are unassisted in the cockpit and on a long journey. If you can do that for enough hours your chances of surviving the odd excitement probably go up.

Insurance is a bet. In this case your co-worker is betting the insurance company that he will die before they think he will. That seems like an odd bet to make. I would put the premium amount into a special savings account instead.

Typo in the first paragraph, company is mispelt all to hell.

lahso said...

Aviatrix: when I last applied for life insurance, they seemed most concerned about whether I fly much around *mountains*. I said that it was pretty flat where I live in Ontario, and that was good enough for them. It's funny how the actuaries fixate on bizarre details when they don't have a big enough sample for brute-force statistical analysis.

Colin: I think of insurance not so much as a bet as the buying and selling of risk. I can afford the risk of my bicycle being stolen, so I don't insure it; I can't afford the risk of my house burning down, so I do insure it, even though I pay more than the value of the house times the risk of it burning down. The difference between the two is the value of the risk itself.

Mike Kear said...

Insurance is one of the few commercial transactions we make in our lives where we pay the money and hope we get nothing in return.

Angus said...

Years ago I had a life insurance salesman come to the house, desperate to make a sale.
"You don't want to talk to me." I said, about to close the door.
"Wait, why not?" he responded.
"I'm a pilot."
"Oh, that's no problem, my supervisor is a pilot - we can definitely help you!"

Turned out I knew his supervisor from the local flying club, and he was persuasive enough to convince me that as father of three young kids I'd be derelict in not letting him return with the requisite tables to give me a quote.

On the appointed day he sat down in our living room with a load of large binders and began the questionare.
"So, what type of flying job do you have?"
"I'm a corporate pilot."
"Do you fly jets?"
"Oh, that's great, you qualify for a very low rate! Just a few more questions...let's you do any other flying, apart from your primary job?"
"Yes, I do some part-time instructing" I said.
"OK, let's stunt or acrobatic flying right?"
"Well I prefer to call it aerobatic flying, but yes that's what I teach."
"Uh oh...well, no test flying of experimental aircraft I presume?"
"Actually I'm currently test flying a friend's airplane, a Christen Eagle he just finished building, but that's not something I do all the time..."

...needless to say I remained the derelict father...

Jack said...

I'd venture to guess that the agent was not interested in before license solo hours, but was interested in the amount of time a commercial pilot flies solo vs. w/ a co-pilot. That might fit into the actuarial tables.

Sarah said...

Funny story, Angus. In addition to flight instruction and aerobatics, US insurance companies do seem to have an issue with the scary sounding FAA "experimental" category airplanes. It's a common exclusion on life-insurance policies. I fly one but don't care to bet I'll die before I get old.

A Squared said...

That seems like an odd bet to make. I would put the premium amount into a special savings account instead.

So, lets say the the purpose of the life insurance policy was to pay off the mortgage on your house, so that your widow wouldn't, in addition to losing her husband and sole provider, also be forced into bankruptcy and lose her house.

With me so far?

Ok, now lets say that instead of paying a $500 (totally fabricated amount) premium for life insurance, you put that premium in a "special savings account". A year later a garbage truck runs over you as you are crossing the street.

Still with me?

Ok now, given that the payments on the $300,000 outstanding balance on your $400,000 home are, conservatively, $1600 per month, how many monthly payments can your non-working wife make with the $500 in that special savings account?

Please show your work.

Aviatrix said...

When I started my first office job, I was given a voucher for a free one-on-one financial planning session with some appropriately impressive institution. I fell for it and made an appointment. (I was young, okay?) The young fellow, whose real goal was to sell me a life insurance policy with annuities after a certain age, started his spiel with the old advice about saving ten percent of your earnings from each paycheck, pausing to allow his impressive wisdom to sink in. My answer was along the lines of "I've been doing that since I was old enough to babysit, what else have you got?" He was floored, totally derailed. He didn't think anyone ever took that advice. His entire sales pitch was geared around the fact that the life insurance policy forced you to make payments to yourself and apparently he'd never encountered anyone who actually did.

If you have no beneficiaries and are only buying life insurance as a way to get a payoff for beating the odds, the special savings account probably is the way to go, unless perhaps particular issues with the stability and government of your country make personal savings an untenable risk.

My co-worker does have a wife and mortgage, so he went with the overpriced insurance for now.

Anonymous said...

Similar experience with the financial planning industry :(

Anyway, with that aside, if your coworker is still looking, try "PIC" insurance. I managed to get a policy for a reasonable price that only went up slightly with flight instruction as one of my occupations. I requested a quote for aerobatics, and sadly, it was many times higher.

dpierce said...

A friend of mine died last year. He went with the special savings account. After all was said and done, balanced and settled, he cashed out with $14 and forty nine cents to his name.

As morbid as it is to say, that's pretty darned efficient!

Kate said...

If your coworker has an ATPL, get him to look into PPIP - Cooperator's Life Insurance but specifically for ATPL pilots. WAY less money than a "regular" insurance company who will charge you hundreds of dollars a month just because you fly airplanes. With PPIP I pay under $40 a month. (I think it's under $30 but I'm not sure and am too lazy to go check now!) It's also really easy to sign up, since the Cat I medical is used in lieu of a "medical exam" and all that other garbage regular insurance companies want everyone else to go thru. (website not working for me now for some reason)


Bryo said...

I am lucky enough to be involved in Actuarial Science and flying. My personal opinion is that commercial flying represents an insignificant hazard to the assured life. The 'stringent' medical requirements of the career should act as a form of 'selection' from the population and thus reduce exposure to the risk of death. These two factors, overall, should result in lower premiums.